Saudi fuel oil exports highest for Oct in 5 yrs

Singapore, October 15, 2009

Saudi Arabia's fuel oil exports - at least 925,000 tonnes so far - have hit the highest level for the October month in five years, due to refinery outages and as peak summer demand tapered off.

The stream of cargoes from Saudi Aramco's refineries at Ras Tanura, Rabigh, Jubail and its joint-venture plant with ExxonMobil in Yanbu could continue into the first quarter, as electricity needs ease with the approach of winter, traders said on Thursday.

But the large flows, which have taken the steam off a market that has been strong for months, will likely be capped after the state oil giant re-started its hydrocracking unit following an outage that sparked heavier exports, traders said.

'Summer's over. We're going to get more barrels coming out of the AG as winter approaches,' said a Middle East fuel oil trader.

For this month, Aramco has exported at least 495,000 tonnes of 180-centistoke and 380-cst fuel oil, while the joint-venture plant sold another 430,000 tonnes of high-viscosity - 650-cst to 700-cst - residual fuel. All the October cargoes are of the cracked grade, used mainly as bunker fuel.

This is the highest since October 2004, when Saudi Arabia sold an estimated 375,000 tonnes of 180-cst and 380-cst fuel oil, and 90,000 tonnes of the 650-cst grade.

Including October-loading cargoes from Kuwait Petroleum Corp, the region's total exports jumped to 1.17 million tonnes.

This is the second-highest level since April this year, when Middle East sales surged to 1.39 million tonnes, largely due to outages at Saudi refineries. Of this total, Aramco has 11 cargoes comprising 813,000 tonnes, with four straight-run A960 parcels that are usually used as refinery feedstock.

Saudi Arabia is fast becoming an important swing supplier in the spot market for the residual fuel, used in shipping and power generation, or for processing into higher-value products, if the barrels are of straight-run grades.

The world's top oil exporter had historically sold term cargoes, until last year when it switched to spot parcels to take advantage of higher premiums in the market and feed growing domestic demand as its economy expands.

The higher-than-expected Middle Eastern exports have weighed on the market, pushing down physical differentials, cracks and timespreads over the last few trading sessions, weakening from the strength seen for most of this year when supplies were limited by refining cuts amidst robust demand.

Fuel oil November/December timespread, which turns prompt a day later, has fallen for five straight sessions. It was valued at a deeper contango of $2.13 a tonne on Thursday, down 63 cents, and at the lowest front timespread value in nearly four months.

In line with the market's weakening structure, the prompt November crack was down for a fourth-straight session at a discount of $6.48 to Dubai crude, down 51 cents and the weakest since June 30.

For mid- to end-October loading, Aramco sold three 380-cst fuel oil cargoes -- two cracked and one long-residue parcel -- as well as an A962 cargo and two A961 parcels.

Aramco's joint-venture Samref refinery with ExxonMobil exported three 650-cst parcels as well as one combination 700-cst and blendstock light cycle oil (LCO) cargo for lifting from mid- to late October.

At least one of the A961 parcels was a direct result of a three-week outage at Aramco's Ras Tanura hydrocracking unit, which was shut for repairs following a hydrocarbon leak.

Aramco re-started the problem-ridden 44,000 barrels per day (bpd) unit earlier this month, and the increase in A961 exports is expected to taper off with the unit now running smoothly, traders said.

This is not the first time the diesel-making unit has had an outage. The unit was re-started in the last week of June after a shutdown lasting several months, which prompted Aramco to offer unusually high volumes of straight-run A960 fuel oil in April.-Reuters